Today’s Philly Fed survey does not bode well for the August ISM report
Head of Macro Analysis
Summary: This is another day of headline-watching on multiple fronts, with the release this afternoon of the U.S. initial jobless claims and the Philadelphia Fed manufacturing sentiment index. There is nothing really good about today's data. Initial jobless claims rise above 1 million again, after two weeks of declines, and the Philly Fed's downside disappointment suggests that the ISM manufacturing index will move downward in August too.
After the Empire Fed’s slowdown in August (-13.5pts at 3.7), all eyes were on the Philly Fed release. It is out at 17.2 vs est. 20.8 and prior 24.1. It is the third time in a row that it is in positive territory since the lockdown. About 28% of survey respondents reported an increase in activity (compared to 52% in February before the lockdown, and 45% in July) and 11% reported a decline in activity (compared to 21% in July). These figures tend to confirm that the economic recovery is plateauing in August, which has been observed in the U.S. but also in many other developed countries, and corroborated by high-frequency data (such as mobility and electricity consumption, see here our analysis on the French economy).
Today’s Philly Fed also suggests that the upcoming ISM index for August, that is due on September 1, is likely to move downward too, in line with market expectations (the consensus for September is at 53.6 vs 54.2 in July).
Digging into details, we look at the indexes that usually better reflects current underlying manufacturing conditions than the headline index and are closely tracked by economists, namely new orders, shipments, delivery time and inventory. New orders and shipments are still in positive territory but softened in August (– 4pts at 19.0 and -5.9pts at 9.4, respectively). By contrast, the inventory index is still in negative territory, but moving fast upward (+9.9pts at -1.9) and the supply delivery time is finally back above zero again (+13.7 at 7.3), indicating a revival in demand. These indexes provide a contrasted overview of the state of the U.S. economy which is still struggling with the resurgence of the virus in many states, further social distancing measures and sluggish global demand.
Without much surprise considering the impact of the pandemic, manufacturers in the Philly region continue to reduce CAPEX plans, which is usually a reliable way to forecast investment in business equipment. Future capital expenditures are still in positive territory, but decreasing from 26.6 to 23. In addition, the current and future employment indexes are down. Current employment is shrinking -11.1pts at 9.0 while the six-month forecast is decreasing by -2.9pts at 29.5. As we have repeatedly stated at Saxo, we think the worst is yet to come in terms of unemployment. We need to get prepared for a prolonged period of mass unemployment at the global level as companies will have no other choice but to cut costs to survive in this uncertain time.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Energy crisis could turn energy stocks into secular winnerWith long-term expected returns for the global energy sector close to 10%, we look at 40 stocks that could be set to cash in.
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.